Q: Can I lose the limited liability protection afforded by my LLC or corporation?
A: Yes. The primary way that owners, shareholders, and members of business organizations can become personally liable for company debts in the event of a lawsuit or bankruptcy is by not “observing corporate formalities.” In order for the shield of limited liability to remain intact, companies should observe several practices, including but not limited to, properly documenting distributions to shareholders, not commingling corporate and personal funds, properly capitalizing the company, and adhering to required filing and meeting procedures of your jurisdiction. Limited liability can also be endangered when individuals personally guarantee or pay the debts of the corporation. Consult a business attorney to ensure that your current practices come into compliance with relevant law.
Originally published in the Portland Business Journal.